Be Careful With That Diamond-in-the-Rough

By: Grant Moon 04/21/15 11:35 am

Real estate investors, those who seek out distressed properties priced well below market, follow a metric that says “buy low and sell for more.” That’s a very simple explanation, there is certainly a lot more to it than that but the dollar math has to work or it’s not a deal. Home buyers can do the very same but rather than flipping the property in a few months after buying, they want to find a real “diamond in the rough” that with a few strokes of a brush and maybe a power wash the property will instantly be worth several thousand dollars more than the original purchase price. Not everyone likes to take such an approach and want the property to be in as perfect condition as possible upon purchase. But those who search for a distressed property take the opposite approach.

However, there are reasons the property is in such a poor shape. The previous owner didn’t or couldn’t take care of it properly. Yes, when you’re considering buying a particular property the seller is obligated to provide a statement identifying any known issues with the property that might affect the value or livability. From small things such as a light switch that doesn’t work to a leaky roof, all are required to be disclosed to any potential buyer. But neglected properties can have a range of hidden defects the owner doesn’t know about.

When using a VA loan to buy a home, the appraiser is required to complete the MPR report, or the Minimum Property Requirements. This additional punch list of items to be check goes beyond what a standard appraisal will report. As well, a standard property inspection performed by a licensed property inspector will also comb through the home from top to bottom looking for problems. If all it takes is a hammer and a few nails, some paint and a thorough cleaning to bring the home up to par, that’s great. But if the house is in such a poor state of disrepair, it might not be eligible for VA financing.

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